越南的中國政策 : 審視對沖策略 - 政大學術集成

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(1)國立政治大學應用經濟與社會發展英語碩士學位學程 International Master’s Program of Applied Economics and Social Development College of Social Sciences National Chengchi University. 碩士論文 Master’s Thesis. 越南的中國政策:審視對沖策略 Vietnam’s China Policy: An Examination of “Hedging Strategy”. Student: Nguyen Thi Thuong Advisor: Professor Chia-Hsiung Chiang 中華民國 106 年 07月 July 2017.

(2) 越南的中國政策:審視對沖策略 Vietnam’s China Policy: An Examination of “Hedging Strategy” 研究生：阮親蘭. Student: Nguyen Thi Thuong. 指導教授：姜家雄. Advisor: Prof. Chia-Hsiung Chiang. 國立政治大學應用經濟與社會發展英語碩士學位學程碩士論文. A Thesis Submitted to International Master’s Program of Applied Economics and Social Development National Chengchi University. 中華民國 106 年 07月 July 2017.

(3) Acknowledgement My completion of this thesis would not have been possible without the guidance and help of Professor Chia-Hsiung Chiang. I thank my professor for devoting his significant time, energy, patience and invaluable advice during my final research. I am very grateful to him for his support to my thesis. I am also fortunate to have a professor who offered me a good opportunity to expand my knowledge in relation to my major. Besides my advisor, I am very thankful to my thesis committee: Professor Alan Hao Yang and Professor Tse-Kang Leng for their encouragement, insightful comments, and hard questions. I also thank the school board for the helps during my study in IMAS. Finally, I have to express my thanks to my family, my parents for supporting me spiritually throughout my life. I would like to thank my husband, for always encouraging me to pursue my ideas and go through difficulties..

(4) Abstract For China, the aspiration to great power no longer seems out of the question and this has actually a significant impact for neighboring Southeast Asian states. For this reason, there have been noticeable attempts in recent International Relations scholarship to introduce the concept of ‘hedging’ as a popular and fundamentally dynamic strategy for them. This thesis argues that the choice of Vietnam’s hedging strategy is appropriate so as to manage its relations with China, but has not yet protected Vietnam’s national interests completely. This thesis examines three of four key components of this strategy: economic pragmatism, hard balancing and soft balancing. By considering and reassessing these elements, the study finds difficulties that interfere in the implementation of Vietnam’s hedging. Furthermore, it incorporates an analysis of a case study in the economic realm, Greater Mekong Sub-region (GMS) in supporting the perceptions of economic pragmatism. Ultimately, it concludes that though Vietnam gains certain interests after adopting hedging strategy, those achievements produce new risks of national security that might increase more pressures for the country in dealing with the South China Sea (SCS) disputes.. Key words: Vietnam’s hedging strategy, economic pragmatism, direct engagement, hard balancing and soft balancing..

(5) 摘要对于中国来说，对大国的渴望不再是这个问题，对邻近的东南亚国家实际上是有重大影响的。因此，近期国际关系奖学金已经引人注目的尝试，将“对冲”理念作为一种流行和根本的动态策略。本论文认为，越南对冲策略的选择是适当的，以便对付与中国的关系，但尚未完全保护越南的国家利益。本论文探讨了这一战略的四个关键组成部分：经济实用主义，硬平衡和软平衡。通过考虑和重新评估这些因素，研究发现了妨碍越南对冲实施的困难。此外，它还分析了大湄公河次区域（GMS）在经济领域的案例研究，以支持对经济实用主义的看法。最终得出结论，尽管越南在采取套期保值策略之后获得了一定的利益，但这些成就产生了国家安全的新风险，这可能会加剧该国在处理南海争端方面的压力。键词:越南的对冲策略，经济实用主义，直接参与，硬平衡，软平衡。.

(6) TABLE OF CONTENTS List of Figures ..................................................................................................................... i List of Tables ......................................................................................................................ii Abbreviations ................................................................................................................... iii 1.. 2.. INTRODUCTION....................................................................................................... 1 1.1.. Research Question ............................................................................................... 3. 1.2.. Literature review .................................................................................................. 5. 1.3.. Concept of hedging .............................................................................................. 8. 1.4.. Theoretical framework: Hedging strategy ......................................................... 10. 1.5.. Methodology ...................................................................................................... 16. 1.5.1.. Analytical framework ................................................................................. 16. 1.5.2.. Research method......................................................................................... 18. 1.6.. Scope and limitation .......................................................................................... 19. 1.7.. Organization of the thesis .................................................................................. 20. VIETNAM – CHINA RELATIONS SINCE 1991 ................................................... 22 2.1.. Economic relations............................................................................................. 25. 2.2.. Political relations ............................................................................................... 32. 2.2.1.. From 1991 to 2000 ..................................................................................... 32. 2.2.2.. From 2001 to 2010 ..................................................................................... 41. 2.2.3.. From 2011 to 2016 ..................................................................................... 45. 2.3.. Problems ............................................................................................................ 45.

(7) 3.. VIETNAM’S STRATEGY TOWARDS CHINA: HEDGING ................................ 52 3.1.. Vietnam’s hedging strategy: A “rational choice” .............................................. 52. 3.2.. Elements provoke the urge to hedge for Vietnam: ............................................ 57. 3.2.1.. Historical experiences................................................................................. 57. 3.2.2.. Political factors ........................................................................................... 58. 3.2.3.. Developments in Vietnam’s foreign relations and international context ... 60. 3.2.4.. Economic characteristics ............................................................................ 60. 3.2.5.. Strategic culture .......................................................................................... 62. 3.3. 4.. HEDGING STRATEGY: RATIONAL BUT STILL NOT EFFECTIVE ................ 65 4.1.. 5.. The implementation of hedging strategy ........................................................... 63. Economic pragmatism: ...................................................................................... 65. 4.1.1.. Trade ........................................................................................................... 65. 4.1.2.. Investment .................................................................................................. 76. 4.1.3.. Greater Mekong Sub-region (GMS) ........................................................... 79. 4.2.. Hard balancing ................................................................................................... 87. 4.3.. Soft balancing .................................................................................................... 93. 4.3.1.. Economic factor as an obstacle .................................................................. 95. 4.3.2.. Construction of artificial islands................................................................. 99. CONCLUSION ....................................................................................................... 104.

(8) List of Figures Figure 2-1: China deployed rigs searching for oil fields in the South China Sea. ........... 47 Figure 2-2: China occupied and illegally renovated Tu Nghia (Hughes Reef) rocks of Vietnam in the South China Sea. ............................................................................................. 49 Figure 3-1: Overview of world military sending in 2016 ................................................ 52 Figure 3-2: The highest military expenditure in the world of the fifteen countries in 2016 .................................................................................................................................................. 53 Figure 4-1: Vietnam – China bilateral turnover from 2006 to 2016 ................................ 68 Figure 4-2: The dependence ratio of Vietnam - China export-import value .................... 70 Figure 4-3: Top 10 of Vietnam imported goods in 2016 ................................................. 72 Figure 4-4: Top 10 of exported goods in 2016................................................................. 73 Figure 4-5: Map of Mekong river basin ........................................................................... 82 Figure 4-6: Chinese triangle strategy in the South China Sea.......................................... 88 Figure 4-7: Vietnam’s military expenditure (2006-2016). ............................................... 90 Figure 4-8: Vietnam major defence acquisition since 1995. ............................................ 91 Figure 4-9: Vietnam Strategic missile-defence force ....................................................... 92 Figure 4-10: China completed illegal runway in Fiery Cross Reef, one of Vietnam’s Spratly Islands. ....................................................................................................................... 101 Figure 4-11: China’s construction in Johnson South Reef. ............................................ 101 Figure 4-12: China’s construction in Mischief Reef ...................................................... 102. i.

(9) List of Tables Table 4-1: Vietnamese trading turnover from 2006 to 2016 ............................................ 66 Table 4-2: Vietnam’s trade deficit from 2006 to 2016 ..................................................... 67 Table 4-3: Vietnam – China trading turnover in comparison from 2006 to 2016............ 69 Table 4-4: Country areas in the Mekong river basin ........................................................ 81. ii.

(10) Abbreviations ACFTA - ASEAN-China Free Trade Area ADB – The Asian Development Bank AFTA - ASEAN Free Trade Area AMTI - Asia Maritime Transparency Initiative APEC - Asia Pacific Economic Cooperation ARF - ASEAN Regional Forum ASEAN - Association of South East Asian Nations ASEM - The Asia-Europe Meeting BEC - Broad Economic Categories CCP - Chinese Communist Party (CCP) CNOOC - The China National Offshore Oil Corporation COC - The Code of Conduct CPC - Communist Party Congress CSIS - The Centre for Strategic and International Studies ECS – East China Sea EEZ - Exclusive Economic Zone EPC - Engineering Procurement and Construction project FAO – Food and Agriculture Organization FDI - Foreign Direct Investment GDP - Gross Domestic Product GMS – Greater Mekong Sub-region GSO - General Statistics Office ICEM - International Center for Environmental Management IHS - Information Handling Services iii.

(11) IMF – International Monetary Fund IR – International Relations LMB - Lower Mekong Basin MARD - Ministry of Agriculture and Rural Development MRC – Mekong River Commission NA – National Assembly PRC – The People’s Republic of China SCS – the South China Sea SIPRI - Stockholm International Peace Research Institute TAC - The Treaty of Amity and Cooperation TPP - Trans-Pacific Partnership agreement UNCLOS - United Nations Convention on Law of the Sea UMB - Upper Mekong Basin VCG - The Vietnam Coast Guard VCP - Vietnamese Communist Party VPN - The Vietnam People’s Navy VWP – Vietnam Worker’s Party WTO – World Trade Organization. iv.

(12) 1. INTRODUCTION In the post- Cold War era, Vietnam is no longer dependent on any single major power. The country is now free to establish its own foreign policy. Nonetheless, Vietnam must always take its northern giant neighbor into account given geopolitical realities, the demand on economic reform and the alleviation of the post-Vietnam War socioeconomic crisis that threatened the survival of the Vietnam Communist Party (VCP). It has been argued elsewhere that after the disintegration of the Soviet Union, Vietnam pushed for normalization of relations with China owing to elements within the VCP and the necessary of border security and stability in promoting its own economic growth. As a result, in November 1991, the leaders of the two countries agreed to put the historic issues aside and made normalization that ensures rights and interests of both nations, so that upholding peace, cooperation and development (Kenny, 2002a). Since then, the friendship and relations of mutual benefits between the two countries have developed both in width and depth in all fields bringing about practical benefits to both sides. The relations are based on the motto of Sixteen Word Guidelines: “friendly neighbourship, comprehensive cooperation, long-lasting stability, and future vision” and the Four Good Principles: “good neighbourship, good friends, good comrades, and good partners” (Vietnamese Ministry of Foreign Affairs, 2010). Le (2013a) explained Vietnam’s normalization of relations with China as an evidence of the influence of domestic politics on Vietnamese foreign policy. He argued that the normalization was the VCP’s top foreign policy goal in order to contribute to the success of the Doi moi (renovation) policy of 1986. Consequently, changes in Vietnam’s China policy during the late 1980s were a product of the VCP’s 1.

(13) domestic agenda of “promoting economic reform and regime survival” (Storey, 2011, p. 110). During the 1990s, however, China continued to carry out aggressive activities towards Vietnam that were unfavorable to Vietnam economic reform and harmful to its sovereignty and national security. For example, in 1997, Chinese drilling rigs entered another disputed area in the Gulf of Tonkin, causing massive protests in Vietnam until China withdrawal the rigs. By the end of the decade, disputes in the Gulf of Tonkin and the Sino-Vietnamese border were resolved. However, the contented claims over the South China Sea (SCS) have not been resolved since the differences still exist between Vietnam and China. Indeed, both China and Vietnam have been trying to deter the other from taking control of the oil and natural gas deposits in the SCS. It should also be emphasized that no one wants any country to gain military control over the commercial waters (Stratfor, 2007). In the 21st century, despite peaceful resolutions in terms of the Gulf of Tonkin as well as exclusive and common fishing grounds, tensions started in 2005 over territorial disputes in the SCS. Most recently, the bilateral relationship was affected seriously since China moved the rig 981 into the exclusive economic zone and continental shelf of Vietnam to explore “illegally” in May 2014. In addition, the rise of China in recent years presents Vietnam a myriad of challenges and opportunities that are clouded by uncertainties. In spite of the emphasis of a benignly rising China from its government, Vietnamese policy-makers still are aware of Chinese domination and uncertainty of what a rising China really wants to do in the international system. As the weak party in the relationship, if Vietnam misconstrues China's actions, the country may be at risks. What is more, China has a significant role in the strategic calculations towards Vietnam, given China’s massive geographic and demographic. 2.

(14) size relative to the region. However, Vietnam also plays a critical part in China’s foreign policy strategy since China is constantly seeking to secure its periphery and prevent future encirclement along its borders. As a result, Vietnam has been managing its relations with the giant neighbor - China mainly by employing hedging strategy, according to experts. Until now, hedging is still a logical option for not only Vietnam but other regional countries in order to manage China’s aggressive behavior. Even though there were many studies on hedging strategy of regional countries, a few discussed Vietnamese hedging strategy. Additionally, most of them only focused on the meaning of “hedging” and/or why the strategy is considered as a judicious choice for Vietnam. Hence, concerns of the management of Vietnam hedging strategy deserve an assessment in need. The main purpose of this study is to contribute to existing literature on how this strategy reinforces Vietnam’s relations with China, what its challenges, complexities, and constraints, potential implications are. Thereby, my argument is that given an assertive, aggressive and powerful neighbor as China, the choice of Vietnam’s hedging strategy is appropriate but has not yet protected Vietnam’s national interests completely.. 1.1. Research Question This thesis is to address the question of which strategy has brought many benefits in maintaining stable Vietnam’s relations with a dominant China in the 21st century. The arguments are made up of the employment of balancing, bandwagoning or hedging strategy towards China by Vietnam. Nonetheless, due to Chinese increasing economic and military power which is considered as one of the key attributes of the emerging. 3.

(15) international order, it is believed that Southeast Asian nations have been adopting similar strategies with Vietnam against the growing Chinese assertiveness. Therefore, this study attempts to interpret concretely why Vietnam has considered itself as a hedger against China over the past decade and presents a timely assessment of policy. Besides, this study introduces four components which underline how Vietnam has run this hedging strategy, and applies them for an analysis of two cases in Vietnam – China relations. Confronting with various issues created by China's aggressiveness regarding the South China Sea disputes, the Vietnamese government changed its policy toward China. After recognizing the potential implications of old strategies- balancing and bandwagoing, hedging is described as a judicious choice to manage the threat posed by China because of history experience, political factors, developments in Vietnam’s foreign relations and international context, economics characteristic and strategic culture. Once the strategy is decided, related governmental bodies will run the strategy through four components: economic pragmatism, direct engagement, hard balancing and soft balancing (Le, 2013b). Because it's not easy to reveal certain achievements in the short time, after implementing the strategy over a period of time Vietnamese leaders also need to assess whether the strategy produces results as expected. Since this thesis puts more emphasis on the degree of success in applying hedging vis-a-vis China, I will take a case study to have a clearer evaluation. Based on findings, if the government so far has not operated the strategy successfully, it is necessary for reviewing and/or regulating components of hedging. In fact, Vietnam has not effectively run the hedging strategy. Given the changing context; domestic changes, president of the Philippines tilts toward China, the era of U.S. president Trump without the so called "pivot to Asia", this may help leaders of Vietnam re-. 4.

(16) orientate their strategy. Of course, being a hedger is rational approach towards China, but chronology issues regarding Vietnam and China deserve more attention.. 1.2. Literature review Given China’s re-emergence in military and economic ability with aggressive and assertive behaviours, Vietnam and other states attempt to find long-term policies to thwart Chinese ambitions which may damage their sovereignty, territorial integrity, and political and economic autonomy. There have been various approaches, but which is the best option? A number of scholars have strived to answer this question, arguing that those countries have applied either balancing, bandwagoning or hedging towards a giant China. In Alliances: Balancing and Bandwagoning, Walt (1987a) defines balancing and bandwagoning strategies as the best solution that help states to deter current risks. He develops three crucial hypotheses on the phenomena of balancing and bandwagoning and what motivate such behaviours. Ross (1999) argues that small countries must either balance against China or reconcile it. Accordingly, Asian countries need to make an accurate decision on seeking cooperating with either the United States or China when a sharply bipolar power division of the United States and China has emerged in East Asia region. It also presumes that the power of state is the influential factor of how states embark on another one. Similarly, some conclude that in responding to China’s resurgence, Southeast Asian states should either balance against China by allying with other stronger powers, or coordinate with Beijing (Stuart-Fox, 2004). Le (2013b) shows that Vietnam’s China policy after normalisation is “a multitiered, omni-directional hedging strategy” and explains this new strategy as a. 5.

(17) perspicacious choice for Vietnam to manage its relations with China after examining it in many different cases. Besides, his study focuses on the role and impact of four major components of this strategy: economic pragmatism, direct engagement, hard balancing and soft balancing; then discusses how Vietnam has developed the hedging strategy towards China since normalization. The author also foreshadows challenges for Vietnam in conducting efficacious strategy. Nevertheless, despite the author’s positive assessments of strategy, cautions need to be exercised. One should not assume that economic relations between Vietnam and China have been managed and they might boost a higher level of Vietnamese economic interdependence. In the contemporary Vietnamese context, if the economic interdependence sustains continuously, the political autonomy of Vietnam cannot be secured completely. Moreover, national security will be damaged significantly because the increasing tensions from the SCS dispute, especially after the issue of HD 981 oil rig. A drawback of this research is that the effect of strategy has not yet been determined. This may be because not any foreign policy produces the desired effect immediately after the application. Therefore, it may take very long time before final assessments can be made. In Hedging China? The Meaning of the ASEAN Member States’ Interests in Forging their Policies Towards China, Dobkowska (2014) also mentions that the strategy some countries chose most frequently toward China is “hedging”, and clarifies key interests that influence countries’ policy on China. While the study provides valuable information regarding the process of forming the ASEAN behaviour towards China, it has not yet explored Chinese response towards them. In short, however, the article only revolves reasons or benefits that impact on choosing “hedging strategy”.. 6.

(18) Colberg (2014) presents a new method for understanding hedging clearer – the three-dimensional approach and two case studies of Vietnamese foreign policy (bauxite mining in the Central Highlands and the open port policy of Cam Ranh Bay). It is unlike Le (2013b), this study uses different ways to explain “hedging” with specific illustrations. Meanwhile Le (2013b) considers “historical experiences, domestic and bilateral conditions, as well as changes in Vietnam’s external relations and the international strategic environment” as main stimuli to decide final policy towards China, Colberg (2014) explains hedging only by three-dimensional approach: domestic, foreign and sectoral. Additionally, the policy implications and recommendations that Colberg offered are valuable. However, the effect of strategy has not been mentioned. In summary, most recent researches have focussed on why hedging strategy is chosen as an indispensable tool for Vietnam in dealing with China’s expansionism. It may therefore be advantageous to also investigate the effects of the strategy in light of the process of strategic development from 2006 to 2016 and assess critically debates regarding emerging or unsolved issues between Vietnam and China in economic and security sphere. Therefore, future research would be helpful to look into whether or not hedging strategy is effective in reality. This question has been surprisingly neglected until recently, as the majority of the literature on hedging has focussed on reasons for choosing hedging and how it has been developed. To appreciate the effects of hedging strategy, Vietnam must examine, in detail, the different spheres that the strategy has been applied to investigate this topic.. 7.

(19) 1.3. Concept of hedging For each country, foreign policy is made to preserve a range of goals and to choose the suitable policy accordingly. It may depend on the historical experience of country with the other, and/or that nation’s current context. For instance, a small state like Vietnam usually combines engagement and deference because it is helpful to expand economic ties as well as enhance military exchanges but the country still maintains its independence and autonomy. However, it sometimes uses hard and soft balancing policy to contain Chinese threats; yet hard balancing might not be encouraged in a long term as it is costly. Despite this, the general strategy of balancing is the most common choice for small state such as Vietnam. Nevertheless, since China’s emergence as a superpower in recent decades has intensified anxieties in the AsiaPacific region, “hedging strategy” has become a buzz word in making foreign policy in many nations. In fact, hedging behaviour is the norm of international relations in which it is argued that countries adopt a kind of insurance policy in order to build military relationships with other countries and simultaneously avoid perpetrating confrontational stances toward other states. Some other scholars argue that pursuing hedging behaviour by some countries in the Asia-Pacific region is mounted integration and engagement along with balancing strategies in the external security cooperation. A good example for this assumption is that Japan’s increasing economic and security collaborations with Vietnam and the Philippines in order to hedge against China in terms of territorial disputes with him. Notwithstanding, hedging may create “a geopolitical insurance strategy” which allows a state to constrain as well as diminish the threats from the regional powers without confronting them. In practice, it simultaneously empowers this nation to manage cooperative and competitive policies to guard against another state that is in. 8.

(20) ascendance (Medeiros, 2005). Whilst security benefits may be considered as a reason why many countries in the Asia-Pacific region recently pursue hedging policy, it is an unsatisfactory interpretation for strategic hedging that occurs when China’s unceasing efforts have been increased dramatically in seeking military modernization, economic development and power projection ability. More broadly, Goh (2006) identifies “hedging” as “a set of strategies” in case of contingencies in which “states cannot decide upon more straightforward alternatives such as balancing, bandwagoning, or neutrality” (p.1). Instead of doing this, they should avoid selecting one side at the expense of another by promoting a middle position. In spite of trying to pursue hedging, some assume that it is not easy to cultivate a middle ground. Rather, countries take opposite positions. Hemmings (2013) insists that the basic assumption of hedging means states both prepare for the worst and the best by reinforcing a large and powerful military ability, strengthening as many alliances as possible and building many trade ties, diplomatic links, binding multilateral frameworks. In general, hedging can be elucidated as a strategy in which a country simultaneously pursues several different and, sometimes, contradictory policies toward other countries, in order to avoid a sole strategic consideration. Hedging strategy has been chosen under the uncertainty of the future, in which people do not know how the behaviour of the other countries will look like. For example, hedging strategies may include both competition and cooperation, both prevention and deterrence, factors for taking the benefits of collaborative relationship, and preventing the strategic risks in future from the partner countries. With a giant neighbour like China, Vietnam has been experimenting various policies which may help in understanding its giant friend better and find out the most. 9.

(21) appropriate strategy to manage its assertive behaviour in recent years. As such, hedging is chosen as Vietnamese final card to vis-à-vis China because it provides Vietnam with the far more flexibility to tackle China’s uncertain behaviour in the future while enabling Vietnam to gain meritorious outcomes out of the present relationship. Hedging strategy requires a flexible implementation of bandwagoning and balancing. If hedging is not considered in Vietnam’s China policy, the likelihood of the detriment to national security and interests (sovereignty, territorial integrity, political and economic autonomy) would be very difficult to prevent.. 1.4. Theoretical framework: Hedging strategy In terms of small and medium-sized states’ foreign relations, the great powers set out perceived as a great risk to their national survival and autonomy, mainstream theories of International Relations (IR), especially Realism offer useful lenses through which statesmen might better analyze the core issues of the relationship, and then find out the most comprehensive approach to cope with problems. The fundamental tenets of realism centered upon the anarchical nature of the international system where states are self-centred and tend to pursue their own selfinterest. In relation to “self-interest”, these countries are self-reliant and are provoked in seeking more power to ensure security in an anarchic world. More importantly, the “survival” factor in realism is the main concern of all nations in which they need to establish a strong military capability resulting in the security dilemma. This might be because of uncertainty of adversary’s real intentions, and then states are forced to pursue military edge. Given the recent complexity, countries face no larger strategic challenge, tensions or potential risks in the coming decades than that posed by the rise of China.. 10.

(22) Indeed, the rise of China has been affecting security and national interests of many small countries in the region. Unfortunately, these states cannot protect those things by themselves. To improve upon the situation, theories of Realism suggest important approaches: balancing against the most aggressive country; bandwagoning with it; or hedging against it. Normally, a small country can curb a threatening state through internal balancing by building up defensive force or external balancing by entering into alliance with other great powers who could help to deter the aggressive power (Mehmetcik, 2015). Some theorists categorize balancing strategy into hard and soft balancing which is really only a difference of degree. Hard balancing means smaller countries strive to build their military proficiency so as to match the capability of the threatening power. Whilst they consolidate their military ability themselves, they could also establish ad hoc cooperative exercises, and/or collaboration in regional or international institutions (Pape, 2005; Paul, 2004). Despite the fact that hard balancing is assumed the most common choice for small states, it might be not encouraged in a long term as it is costly and limits “diplomatic flexibility” (Sherwood, 2016). However, in general, if balancing is the most likely chosen strategy, powerful countries might align with others to counteract. Practically, any country who wants to dominate others will actually attract opposition. This is because weaker states might not be easy to let stronger states threaten their own self-interest. Interestingly, this is also true to the case of threatening countries, and thus, the fear of alliance will decline. For this reason, in a balancing world, statesmen will not exhort an aggression because they can foresee a resistance. Therefore, policies which curb the aggressiveness and assertiveness of powerful countries may be the best because they can minimize tensions and pressures those countries pose to weaker ones.. 11.

(23) Yet, although the mighty evidences show that the support of balancing in the past, “the opposite response is more likely widespread” (Walt, 1987a). Thompson (1977) has said that “Momentum accrues to the gainer and accelerates his movement. The appearance of irreversibility in his gains enfeebles one side and stimulates the other all the more. The bandwagon collects those on the side-lines.” The bandwagoning policy is really a popular approach for small countries seeking to neutralize or avoid conflict with stronger powers. If a small country considers bandwagoning policy, it will have to pay deference and accept a lower status in the relationship with a stronger power. In return, it receives the guarantee of security and economic benefits. Bandwagoning may be an effective defence way in which statesmen can seek to “increase military budgets” (Walt, 1987a), and thus, their nation’s military capability might be upgraded. It may also be, however, offensive when small states try to profit by “aligning with the other side” (Sherwood, 2016). Hence, bandwagoning is described as the smaller state’s political and military alignment with more powerful state to avoid being attacked (Walt, 1987b). On the other hand, it is also chosen by small countries with the hope of always gaining economic interests from its relationship with the stronger one (Schweller, 1994). In fact, statesmen cannot easily predict the intentions of countries and the decisions on economic, political and security policies are correlative drivers in a nation’s foreign policy. Thus, when a smaller country tries to establish good relations with a more powerful one only for economic fruits, it could be argued that this policy has security implications for the previous strategy as well (Le, 2013b). Le (2013b) explained that this may be due to smaller countries’ desire of changing perceptions of greater power. Accordingly, if a small country attempts to intensify a favourable relationship with the greater power, it will “encourage the greater power to view the smaller state as a. 12.

(24) friendly partner” (Le, 2013b). According to liberal peace theorists, a favourable bilateral relationship may also provide many economic benefits for the stronger power as well, thence deter it from taking aggressive action against the smaller one in case it is pushed into strategic relations with rival powers (Gartzke, Li, & Boehmer, 2001; Maoz, 2009; Oneal & Ray, 1997). In other words, as far as bandwagoning is concerned as economic gains, this choice may affect security of small states. Nevertheless, bandwagoning strategy probably is much more challenge. When small countries intend to ally with the threatening ones, it might put itself at risk because they will increase their dependence on those states. This could be aggravated if the influential powers appear both strong and potentially aggressive. It should be noted that the real goal of small countries in choosing bandwagoning is to reduce clashes and to reinforce their relationship with powerful countries aiming to ensure their national security. Unfortunately, this choice puts small countries at a disadvantage and under the influence of powers. As a result, a small country may gain security, but it would have to accept to give up other things. Moreover, those who are cornered, they will be more inclined to fight back by using force. When such a conflict happens, it will be extreme because a defeat may be the decline of one side and the dominance of the other. If policy-makers believe that bandwagoning is used widely, the tendency to use force is true for the both former – aggressors and the latter – status quo powers. While the former in the past use force because they assume that other will not be able to balance against them and they can form an alliance with them through “belligerence or brinkmanship”, the latter choose it due to the fear of their adversary’s attainments created by appearing powerful and adamant (Liska, 1962). Eventually, both balancing and bandwagoning strategies are dangerous, because once policies that work for one case it will be counterproductive in the other. If a. 13.

(25) small country use the balancing policy in a bandwagoning world, their humble responses and disregard of threats will encourage their allies to leave them isolated against an overwhelming coalition. Conversely, following the bandwagoning in a world of those who regularly employ power and threat - balancers - will lead others to against you more and more vigorously (Jervis, 1976). Therefore, forms of balancing and bandwagoning are difficult to pursue for small countries. In order to maximize choices for countries who want to against threatening powers, theorists have proposed another strategy called “hedging”, which has been interpreted in many different ways by International Relation scholars (Goh, 2006; Medeiros, 2005; Roy, 2005). Basically, hedging can be elucidated as a strategy in which a country simultaneously pursues several different and, sometimes, contradictory policies toward other countries, in order to avoid a sole strategic consideration. Hedging strategy has been chosen under the uncertainty of the future, in which people do not know how the behavior of the other countries will look like. For example, hedging strategies may include both competition and cooperation, both prevention and deterrence, factors for taking the benefits of collaborative relationship, and preventing the strategic risks in the future from the partner countries. The selection of hedging depends on push and pull factors and the national interests to which influence a country’s approach. Owing to the diversity and convertibility of this policy, countries can be easily manipulated according to the level of development in their bilateral relations as well as changes in the international environment (Le, 2013b). Therefore, in severe cases, a country can switch to balancing or bandwagoning strategies without a reconstruction of its foreign and security policies. Consequently, hedging offers countries the flexibility to best deal with their partners’. 14.

(26) uncertainty in behaviour while allow them to receive the most in the existing relationship. As described in “one of the great dramas” (Ikenberry, 2008), the rise of China has surprised Southeast Asian countries for its dramatically increases in economic and military power in the twenty-first century. The remarkable economic growth and active external policies of China are already affecting those countries and they may see greater increases in Chinese power and potential implications. Moreover, the rise of China has been predicted to bring less opportunity as well as put more pressures and challenges on regional countries by experts from various countries. To cope with the uncertainties associated with China’s ascendancy, Southeast Asian nations have been responding in various policies, which unquestionably reflects the diversity of the above discussed theories. Particularly, in Alliances: Balancing and Bandwagoning, Walt (1987) defines balancing and bandwagoning strategies as the best solution that helps states to deter current risks. He develops three crucial hypotheses on the phenomena of balancing and bandwagoning and what motivate such behaviors. However, Friedberg (1993) argues that the end of the Cold War transformed international order of bipolarity into multipolarity which bloomed both positive and negative impacts for Asia, in which elite politics dominates and other regional countries can lean on balancing as the major solution to handle emerging threats, including those posed from China’s rise. Meanwhile, Ross (1999) argues that again small countries must either balance against China or reconcile it. Accordingly, Asian countries need to make an accurate decision on seeking cooperating with either the United States or China when a sharply bipolar power division of the United States and China has emerged in East Asia region. He also presumes that the power of state is the influential factor of how states embark on another one. Another argument is that. 15.

(27) Asian countries should only employ bandwagoning strategy to deal with an emerging China. This is because China, as the core in regional order, one believes that Asia can grow in peaceful and stable future despite the emergent and benign of ambitious China (Kang, 2003). These perceptions, however, have been criticized as too simplistic (Acharya, 2004). As discussed above, both the balancing and bandwagoning strategies still encounter many risks. As a result, hedging has been regarded by many scholars as the judicious choice that regional countries can pursue to manage Chinese assertive behaviour in recent years (Goh, 2016; Korolev, 2016; Kuik, 2008; McDougall, 2012; Medeiros, 2005; Mochizuki, 2007; Roy, 2005; Thayer, 2011). In Southeast Asia, the term of “hedging” is also considered as an alternative to “balancing” and “bandwagoning” in the selection of small states’ strategies towards a powerful country. Nevertheless, due to the difference of each country’s position and its main interests, as well as the significance of particular tools applied in the strategy, the adoption of hedging varies from country to country (Goh, 2005; Kuik, 2008). In the case of Vietnam, several scholars at home and abroad have directly or indirectly argued that the country has been employing the hedging strategy in order to constrain China (Colberg, 2014; Goh, 2005; Le, 2013b; Roy, 2005; Thayer, 2008).. 1.5. Methodology 1.5.1. Analytical framework While a significant amount of constituent has been combined for the operation of hedging strategy over the last few years, there is lack of criteria and/or guidelines for the evaluation of hedging. To operationalize hedging, Indonesia, Malaysia, Singapore, India, Australia and South Korea combine range of options including economic-. 16.

(28) pragmatism, binding-engagement, limited-bandwagoning, dominance-denial and military hedge (Klingler-Vidra, 2012; Rozman & Kuik, 2015). Firstly, economicpragmatism is pragmatically a method aims to maximizing economic interests and avoid the dependence on rising powers (Rozman & Kuik, 2015). Secondly, bindingengagement is a policy aimed at strengthening dramatically diplomatic benefits by engaging a rising power in divergent bilateral and multilateral co-operations (Schweller, 1999). Thirdly, the element - limited-bandwagoning – a strategy designed to forge a partnership with a threatening power aiming at maximizing political interests by selective deference or collaboration on major external issues without accepting a subordinate position (Rozman & Kuik, 2015). Fourthly, the factor dominance-denial – an approach applied to minimize geopolitical risks when actors face a predominant hegemon by non-military means in order to balance the influence among the powers (Acharya, 1999). Finally, indirect-balancing or military hedge – an option adopted to minimize security risks by military means; in which weak states forge to build defense partnerships and reinforce their own military without directly and explicitly targeting at a specific country (Goh, 2008). The components of different actors’ hedging behavior may be different from country to country and across time. This variations can be due to a distinct function of domestic legitimation in which states set up directions in many way in order to “justify and enhance their authority by acting in accordance with the principal sources of their legitimacy at home” (Kuik, 2015, p. 4). In addition, the difference may be because of actors’ distinct perceptions and expectations given the context of each country. These may be changed significantly from the degree to the mode of hedgers’ choice. No matter how a policy that involves this five-point composition is hedging and if not or it lacks of one of these, it should not be regarded as such (Rozman & Kuik, 2015).. 17.

(29) In fact, Mochizuki argued that Japan shifted its China policy from “the ‘friendship diplomacy’ paradigm” to hedging against potential threats posed by China which is concentrated greatly on four components: cooperative engagement with a soft hedge, competitive engagement with a hard hedge, balancing and containment and strategic accommodation (Mochizuki, 2007). For Vietnam, Le (2013b) introduced hedging strategy with four components that are consistent with currently domestic conditions and the fundamental goal of the Party and State - “vua dau tranh vua hop tac”. They are economic pragmatism, direct engagement, hard balancing and soft balancing. As mentioned above, due to the difference of hedging’s implementation from country to country and the divergent interest in shaping countries’ hedging, there is no single framework or criteria used in various hedging studies. It should be considered that although countries are utilizing similar strategy towards China, they are at different stages of hedging and have their own different priorities in carrying out. This thesis scrutinized Vietnam’s hedging by considering and re-assessing merely the progress and practical achievements of three components - economic pragmatism, hard balancing and soft balancing from 2006 to 2016. 1.5.2. Research method In order to support the assessment of hedging’s three constituents, the author used qualitative method. It relies on spoken and written reports in a form of reflexion in relation to a particular theme. In general, main source of material is collected to make specific assumptions is open and published data including books, formal and informal documents, journal articles, working papers, theses and the others. It appears that despite hedging assessments, this study may ignore several related factors and only view in a short term (10 years); hence, it is difficult to obtain a complete process.. 18.

(30) Economic pragmatism, hard balancing and soft balancing were used for this assessment, for several reasons: (1) they are indeed composition of hedging in illuminating and guiding the implementation of Vietnam’s China policy under uncertainty; (2) they reflect correctly what Vietnam has been conducting and the country’s attainments after adopting the strategy; (3) these criteria captures intentions and perspectives of Vietnamese strategists who are directly involved in hedging processes.. 1.6. Scope and limitation Before investigating hedging strategy, it is necessary to recognise the scope of this thesis. Firstly, this study focuses concretely on Vietnam’s China policy; thus, this thesis mainly argues the bilateral relationship between Vietnam and China through the Vietnamese perspective. Secondly, the two case studies are placed in the period of 2006 - 2016. Therefore the findings are merely applicable to that time. Thirdly, this research primarily uses open resources and published materials. Owing to not so many Vietnamese scholars have written on hedging, it is not easy to find valuable materials on the Vietnam’s perspective. As a result, it would be difficult to ascertain the intentions of Vietnam’s leadership. This study is focusing on one peculiar case study: the Vietnamese - Chinese economic relations on the Mekong River basin. Consequently, two prominent issues of Vietnam – China relations are not covered in-depth due to their sensitive and complex nature: ASEAN and the South China Sea (SCS). In recent years, territorial disputes between China and Vietnam in the SCS are one chain that cannot be removed and more important, one of the key factors contributing to tensions of the Vietnamese - Chinese bilateral relations. This thesis, however, does not examine this issue in. 19.

(31) detail. Instead, the conclusion considers the applicability of hedging strategy to current disputes in the SCS. Furthermore, some ASEAN member countries are believed to adopt the same strategy against the growing Chinese assertiveness, especially to resolve territorial disputes in the SCS. Nevertheless, this thesis does not emphasise the difference in the implementation of the strategy between some ASEAN countries and Vietnam or examine the influence of ASEAN factor in Vietnam – China relations. Also these two issues have already attracted enough attention of academic community.. 1.7. Organization of the thesis This thesis contains five main chapters. Chapter one introduces briefly background, the urgency of doing this research and the purpose of study. The literature review, theoretical framework, methodology, organisation, scope and limitation of the thesis are also represented. Chapter two provides an overview of the geopolitical relationship between Vietnam and China from normalisation until now. The focus is particularly on three elements of the relations: politics, economy and border – territory. This chapter also provides a detailed assessment of achievements and hindrances in the geopolitical relationship between Vietnam and China. Chapter 3 is alternative explanations of choosing hedging as a rational strategy against China in the Vietnamese current context. This chapter clarifies the reasons for Vietnam’s response to China that Vietnam would have balanced against or bandwagoned with China. Additionally, the strengths and weaknesses of balancing and bandwagoning strategies are also discussed. Moreover, chapter three introduces the readers to four components of hedging strategy which are to evaluate this reasonable option.. 20.

(32) The next chapter is analyses of hedging and a case study within Vietnam – China relations basing on the four components of hedging strategy. The case study is on Mekong River Basin - economic sphere that may be heuristic as to whether or not applying hedging strategy of Vietnam towards China is effective. Chapter four reconsiders and assesses Vietnam’s strategy in the relationship with China based on three of four components. Chapter five concludes with assessments of hedging strategy and potential impact for Vietnamese policy.. 21.

(33) 2. VIETNAM – CHINA RELATIONS SINCE 1991 If we obliterate Vietnamese historical struggles with China to consider its relations with China today, it can be described as imperfect, contradictory and asymmetric. Some Western scholars insist on Vietnam is always in the shadow of Chinese dragon. Their argument is that until now to Vietnam, China is the main focus of its foreign and defence policy as well as internal economic and political development. It is wrong when they view Vietnam as the Chinese shadow because it probably never exists in Vietnamese people’ thoughts. In spite of the social and cultural similarity and a thousand years relationship (from 111 B.C. until A.D. 938), Vietnam is a smaller neighbor to the south of China and has a shared 1460 kilometer-long border that is contiguous to Vietnam’s seven provinces from the west to the east, thus, Vietnam is forced to build many relations and has to be careful with its northern neighbor. If it does not, it will pay a high price. For China, Vietnam is not important in “its grand strategy for the defense and development of the Middle Kingdom” (Kenny, 2002a). However, to make sure that Vietnam has been doing nothing to combat the ascendancy of China in reigning in Asian region, China flirted with the idea of creating an engagement with Vietnam. This means setting relations with Vietnam over 2,200 years is Chinese effective option in ensuring that Vietnam is always in its scope of control. In addition, China is itself very well aware of benefits of Vietnamese strategic position; hence, China’s relationship with its southern neighbor plays a crucial role for not only the economic and political development on both sides, but also the expansion of Chinese affected extent to the entire southern region. One should be added that the relationship between Vietnam and China is one of the oldest geopolitical relationships in the world, receiving considerable attention from the international community. This is probably due to its long history. Nearly 22.

(34) twenty-two centuries of its history, the relationship between Vietnam and China is not always as simple as a relationship between two countries that we are used to imagine the relationship between two "countries" in the modern world. "Vietnam-China Relations" here is widely understood by many critics as the relationship between two geopolitical entities. For over 2200 years from the second century BC to now, relations between Vietnam and China can be divided into four major periods. The first period was called the "Northern domination period" lasting about one thousand years from the fall of Au Lac kingdom to Zhao Tuo of Qin Dynasty (179 m TL) to the victory Ngo Quyen over the Southern Han kingdom at the Battle of Bach Dang River (938 BC). This period also marked for the first treatment between the Red River delta and the Central China was established through Sino-Vietnamese relations. The "Dai Viet period" was the second period since Ngo Quyen was proclaimed himself the emperor of Ngo Dynasty (939) until the French established protectorate in Vietnam and the Qing Dynasty recognized French sovereignty (1883). The third period was called the "French colonial period," which lasted about six decades, from 1883 to 1945, when Vietnam declared independence. The fourth period is called the "Vietnam Period" (from 1945 to present). This period consists of three phases: (1) from the late 1940s to the late 1960s, (2) from the early 1970s to the late 1980s, (3) from the early 1990s until now. However, my study only refers to the final phase of the fourth period in order to take a closer look and easily trace the events that have taken place in recent years between the two countries. Sharing land and sea borders, having interactive attachment of culture and history, the people of Vietnam and the Chinese people historically always support, encourage, and help each other in the shared revolutionary warfare. Nevertheless, the. 23.

(35) relations of the two states may also be characterized by antagonism, animosity, war and occupation (Womack, 2006, p. 23). Despite the difficult time (111 B.C. until A.D. 938) and afterwards, advances since the 1990s have witnessed great changes for bilateral relations of the two countries in the twenty-first century. After the changes in the Socialist Bloc from 1989, the Communists in Hanoi; in maintaining its power, had innovated the economic system based on “Doi moi” policy. This is firstly applied to deal with the Cambodian issue – the genocide of the Khmer Rouge regime under Pol Pot (SarDesai, 2009; Womack, 2006). Even though People’s Army of Vietnam troops’ intervention had saved Cambodian people from genocide of the Khmer Rouge, Vietnam was isolated in world affairs for its occupation of Cambodia – an allegation mainly made by China. Although after capturing of over ten years, the Vietnamese army was eventually evacuated from Cambodia in 1989 (Thayer, 1994), the international embargo on aid and trade kept slowing down Vietnamese economic growth. Indeed, it not only affected Vietnam’s status in the international system seriously, but also significantly reduced the import of necessary resources for its economic improvement. In order to cope with this difficulty Vietnam initiated the normalization of its relations with China (Kenny, 2002b). Consequently, in an effort to settle disputes with China, Vietnam hopes for a modus vivendi with China which could help both countries to reach a shared security for mutual benefits. However, Womack (2006) argues that it is not possible or easy for both Vietnam and China to find a common voice due to ideological discrepancies. Needless to say, the two states until now have not found the best solution in dealing with the escalating conflict concerning territorial disputes over the Spratly Islands and the Paracel Islands in the South China Sea (SarDesai, 2009). Despite this, in November, 1991, the leaders of the two countries agreed to put the historic issues. 24.

(36) aside and made normalization that ensures rights and interests of both nations, so that upholds peace, cooperation and development (Kenny, 2002a) . Since then, the friendship and relations of mutual benefits between the two countries have developed both in width and depth in all fields bringing about practical benefits to both sides. The relations are based on the motto of Sixteen Word Guidelines: “Láng giềng hữu nghị, hợp tác toàn diện, ôn định lâu dài, hướng tới tương lai.” This is translated approximately to friendly neighbourhood, comprehensive cooperation, long-lasting stability, and future vision; and the Four Good Principles: “good neighbourhood, good friends, good comrades, and good partners”. As a result, the politicians of Vietnam and China annually hold meetings between the two parties, governments or national assemblies (Vietnamese Ministry of Foreign Affairs, 2010). For example, Prime Minister Nguyen Xuan Phuc had a visit to Beijing in October 2016. To expand and strengthen the Vietnam-China relations, in order to meet the interests of the two peoples as well as for peace, stability and development in the region, the two countries have established partnerships with comprehensive strategic cooperation on many aspects, especially politics and economy.. 2.1. Economic relations Although the economic development during the last two years of the 1990s is slow, its performance, in general, is dramatically changed with rhetorical encouragement by Vietnamese leaders. To achieve the goal of “a prosperous population, a powerful country, and an equitable and civilized society”, President Tran Duc Luong and Vietnamese Communist Party (VCP) continuously encourages people to hasten production and fulfil socioeconomic for the coming years when the country is on the way toward the success of industrialization and modernization.. 25.

(37) This is a creative manipulation of Marxism-Leninism and Ho Chi Minh's views on socialism which reflect the expectation of modernization of all Vietnamese citizens in Vietnamese economic performance. During the first seven years of the 1990s, Vietnam’s average annual gross domestic product (GDP) growth was 8.4 percent. By conducting seriously the poverty reduction program, the alleviation of poverty in Vietnam gained very astonishing results. Particularly, the percentage of people below the poverty line declined significantly from 58 to 37 percent between 1992-1993 and 1997-1998, and the number of people suffered from food shortages and poverty decreased from 25 to 15 percent (Poverty Working Group, 1999). At the same time, the country also increased its in-flow of foreign direct investment (FDI) to $4.4 billion per year on average (International Monetary Fund, 1999b). The export increased averagely 10 percent per year while the inflation was under control. Needless to say, Vietnam had achieved significant progress in economic development at that time. Nevertheless, it seems that Vietnam has nurtured a very big dream. In comparison to its neighbouring Association of Southeast Asian Nations (ASEAN) countries, the per capita income of Vietnam at that time was just $210 (State, 1996). Therefore, Vietnam’s high growth rate of the 1990s had not shown that its economy was on the good development momentum. Another evidence is that Vietnam’s growth was thanks dramatically to inflated land values, very cheap labour and especially foreign aid which made Vietnam quickly became one of the largest recipients of foreign assistance in the world. Even though it had greatly modified the economic policy-making, it remained a generally stagnant economy. In 1998, Vietnamese growth rate was less than a third of the average of the period of 1991-1997 (International Monetary Fund, 2000). The Vietnamese leaders pointed out that the Asian economic crisis in the period of 1997-. 26.

(38) 1998 is the important drawback of its economic downturn. In order to recover from this situation, they continuously believed that with a turnaround in Asian financial crisis with large external developmental assistance would occur (International Moneraty Fund, 1999a). After the two countries normalised their relations, trading activities increased rapidly but developed in negative directions. It is true to say that Vietnam-China economic relations maintain the development trend with many agreements and cooperating documents, laying the legal basis for long-term cooperation between the two countries. Specifically, the two countries have many important projects to strengthen the connection of development strategy, promote the link between the "two corridors, one belt" with the “one belt, one road” (Nam Duong, 2016). Besides, there are many cooperation projects in the fields like construction materials, supporting industries, machinery and equipment, electricity, renewable energy, etc.,. In fact, while Vietnam's export turnover to China in the 1990s was nearly $4.9 billion, its import turnover from China was $4.3 billion, and thus the export surplus was $600 million. Since the beginning of twenty-first century, Vietnam-China trade relations developed in the opposite direction. In 2001, Vietnam’s export reached $1.4 billion and its import was over $1.6 billion, trade deficit was nearly $200 million. From 2006 to 2016, Vietnam and China bilateral trade increased from $10.6 billion to $71.9 billion. Accordingly, on average, while the annual import turnover increased 22.4%, export turnover only increased 20.2%, hence Vietnam’s trade deficit increased quickly. Trade balance of Vietnam was $32.8 billion in 2015, almost doubled the export of Vietnamese goods to China. In 2016, its trade balance was $27.9 billion, 1.27 times higher than Vietnam’s export to this market. It could be said that China’s high proportion in the total trade of Vietnam (in comparison with other markets like. 27.

(39) Japan, the U.S., South Korea, ASEAN countries) is what should be concerned. This is because the changes from China may affect not only directly and immediately Vietnam’s trade, but the activities of Vietnamese enterprises in various level with different fields. Over the past 10 years, although the export of Vietnam to China has grown steadily, this is still much lower than the increase of import. Vietnam's export to this market focuses mostly intermediate goods, consumer goods, petrol. With this export structure, Vietnam will be difficult to gain much profit. Meanwhile, most of the materials used for the export production of Vietnam are imported from China. Until now, China is still Vietnam's largest trading partner and Vietnam also becomes China's largest trading partner in Southeast Asia (Vietnam Customs, 2016). Despite this, Vietnam still remains trade deficit to this market due to the significant difference in the growth rate of export and import. As such, it can be said that Vietnam’s domestic production and business activities are heavily dependent on China. If Vietnam does not diversify both export and import markets, it will be increasingly reliant on China in the field of trade. As a consequence, if China adjusts its trade policy and applies protective measures for its domestic production, supporting its export, or forbidding or restricting certain imports and exports; Vietnam’s economy will face many difficulties, especially for manufacturing enterprises. The bilateral trade relations over the past ten years have been tilted towards China, as China mainly exports refined commodities and imports raw materials. Meanwhile, Vietnam has not benefited much and has not utilized its advantages in this commercial relationship. Additionally, Because the design and style of Chinese goods are attractive, the price is competitive and the cost of transportation to Vietnam. 28.

(40) is lower than other markets; China's clothing, toys, fruits and food have spilled into the Vietnamese market, contributing to satisfy the consumption demands of some classes of population. However, the excessive import of consumer goods from China, which is mainly through small quota and partly cross-border smuggling, has inhibited the development of Vietnam's industry. More importantly, there are many poor and toxic quality products originating in China are also sold in Vietnam, affecting the health of Vietnamese consumers. Some resource-rich countries or those who their industrialization is lower than China like Vietnam has been affected by the export of resources, raw materials and processed goods. Meanwhile, the Chinese export of finished products has the ability to compete very well with resource-exporting countries. As a result, the industrial production of resource-exporting nations is narrowed; even these states cannot develop due to being tied to the export of resources and goods with low technical content. In the long term, the economy will lose the ability to improve productivity because the industrial production is lack of innovation and creativity. In short, Vietnam – China trading relation has gained many achievements in the recent years. However, Vietnam needs to act on its own to build an independent economy through specific directions aiming to reduce risks caused by China. Thence, the commercial performance between Vietnam and China can be improved dramatically. In terms of investment, China's foreign direct investment in Vietnam recently has witnessed marked improvement over the first nine years after the normalization of relations between the two countries. Since 2000, China's investment has grown rapidly in terms of quantity, scale and location.. 29.

(41) From 1991 to 1999, China had 76 projects with a total investment capital of $120 million (Institute of Chinese Studies, 2010). However, China’s projects in Vietnam increased to 657 in 10 years later with a total registered capital of $2.6 billion (Institute of Chinese Studies, 2010). As such, within 10 years, the number of Chinese projects in Vietnam had increased more than eight times, the registered capital increased 22 times in compare with the first nine years after normalization. China's investment has increased steadily over the years. However, due to the impact of the world financial crisis and the downing trend of direct investment in Vietnam, China's investment in Vietnam in 2009 also decreased significantly compared to previous years both in terms of quantity project and new registered capital. Especially, the number of newly licensed projects and investment capital of China in Vietnam in 2009 was a half and about 1/3, respectively in 2008. By the end of February 2015, China had 1109 projects in Vietnam with a total registered capital of $7.99 billion, ranking 9th out of 101 investors in Vietnam (Ministry of Foreign Affairs, 2015). In 2016, China's investment in Vietnam reached $ 1.26 billion, accounting for 8.3% of total FDI into Vietnam (Chan Luan, 2017, April 5). China's investment in Vietnam in 2016 had witnessed a shift from hospitality, restaurant and consumer goods sectors to processing and manufacturing. In addition, China's investment is scattered in other areas such as real estate, accommodation and catering, mining, information and communication, electricity, water, air conditioning. It could be said that China's investment in Vietnam has been only concentrated in the normal business, but changes in the investment sector as a result of the changes in investment scale and form. In the past, most of the direct investment projects of Chinese enterprises into Vietnam were joint ventures with Vietnamese enterprises, but in recent years there. 30.

(42) have been significant changes (Institute of Chinese Studies, 2010). For example, in 2009, there were 441 out of 657 investment projects in the form of 100% foreign capital, accounting for 67%, topping in the four investment forms of China in Vietnam, followed by the joint venture with 169 out of 657 projects, accounting for 25%, finally business cooperation contracts and joint stock companies. This change shows that Chinese businesses are confident, knowledgeable, and affordable in business independence as well as trust in the Vietnamese market. At present, direct investment of China is present in 52 provinces and cities of Vietnam but mainly in densely populated cities with strong labour attraction, good infrastructure, where are convenient for import and export as well as travel between China and Vietnam (Institute of Chinese Studies, 2017). China's direct investment has also been directed at some of Vietnam's border provinces. Some of them have poor infrastructure, low level of development and difficulty to attract foreign investment such as Lao Cai, Lang Son, Cao Bang, Lai Chau. This reflects the result of the strengthening of cooperation between the localities of the two countries, especially the promotion of cooperation with Vietnam of some Chinese provinces such as Guangdong, Yunnan, Guangxi; a new trend in the development of Vietnam-China relations. In order to strengthen the major investment projects in infrastructure and cooperation in the field of banking and finance, especially cooperation in preventing the impact of the international monetary and financial crisis, as well as in protecting currency security in each country, the two sides are promoting the establishment of working groups on cooperation in infrastructure and the working group on monetary cooperation.. 31.

(43) China's outward investment trend is on the rise, thus Vietnam has a belief that China's foreign direct investment in Vietnam will continue to grow and contribute positively to each country’s economy as well as the Vietnam-China relationship.. 2.2. Political relations Since the normalization of relations between Vietnam and China in 1991, many great changes have occurred in the two countries. From the starting of relations and explorations after a period of intense tension, the two countries have rapidly progressed to intensifying their cooperation in many fields, understanding each other. As a result, in the early years of the 21st century both countries have made so many significant changes, contributing to the long-term stability of the two countries. Yet, changes may be seen as a part of the international impacts and the domestic situation in the two countries.. 2.2.1. From 1991 to 2000 In the early 90s of the twentieth century, the international and regional situation changed. After the end of the Cold War, Vietnam and China relations were not influenced by the U.S. and the Soviet Union due to their reduction of presence in the region. In this new international situation, China directed itself to a positive shift that developed friendly diplomatic relations with its neighbours, including Vietnam, in order to take advantage of the support of these countries. In 1991, China participated in the "ASEAN Ministers' Meeting before being invited to participate in the ASEAN Regional Forum (ARF). In 1992, in Malila, Chinese Foreign Minister Qian Qichen expressed his desire for the promotion of a multi-level dialogue on ASEAN security.. 32.

(44) Vietnam's foreign policy in this period also gradually changed: it would like to expand and strengthen relations with countries around the world. In this context, the two countries gradually came to the normalization and this was remarked by the official visit of Vietnamese leaders to China in November 1991. This was a rare event in diplomatic relations, demonstrating that Vietnamese leaders attached great importance to and wanted to actively address normalization issues with China. During the visit, the two countries have made significant progress, jointly issued a joint communiqué, and the leaders of two countries have also identified five principles of directing state relations, relations between the two parties based on the principle of independence, self-control, full equality, mutual respect, non-interference in each other's internal affairs (Vu Khoan, 1999). Especially, both agreed to end the strained relationship in the past, normalize bilateral relations. Through these events, the two sides' views on the world situation clearly have changed. It can be said that after the collapse of the Soviet Union and Eastern European countries both sides have realized that the normalization of bilateral relations was in line with the long-term and fundamental interests of the two countries, which also marked a tremendous change to not only bilateral relations but also the region. Since then, the leaders of the two countries have maintained their visits and exchanges, and both had constantly cooperated in many fields. During the early days of normalization, in spite of some unresolved issues such as territorial disputes, islands, division of maritime boundaries and fishing, meetings at various levels, dialogue and negotiations between both sides have helped to reach strides on the issue of territorial boundaries. On October 19 1993, the government representatives of the two countries signed the Agreement on basic principles for the solution of territorial-border issues (Phung, 2002), paving the way for the Pact of. 33.